The Toronto Maple Leafs haven't had the Stanley Cup in 40 years. So how can they be the most lucrative hockey team on the planet?

To the most rabid hockey fans in toronto, Richard Peddie, chief executive of Maple Leaf Sports & Entertainment, is a bum. The Toronto Maple Leafs, the company's biggest asset, are off to another mediocre start this season, with a 5-5 won-lost record. The team hasn't won the Stanley Cup since 1967; in the four decades since the last Cup, the Maple Leafs have won 1,298 regular season games and lost 1,378.

But in the eyes of the owners, Peddie is a hero. In nine years running the parent corporation of the Maple Leafs, Peddie, 60, has created quite a silk purse, tripling the enterprise value of the privately held company to $1.5 billion through clever marketing and shrewd dealmaking. (Enterprise value is the market value of a business' equity, plus its interest-bearing debt, minus its cash equivalents.) Of this sum the hockey team accounts for $413 million of value, according to FORBES' estimate. We figure the next most valuable hockey franchise is the New York Rangers, worth $365 million.

How can one of the National Hockey League's sad sacks be the most valuable franchise in the sport? The answer lies in the fact that sports valuations are founded on more than championships; they are also a function of player costs, stadium real estate and the population of the home market. Peddie, of course, is acutely aware that the fans don't put much stock in economics. "My fear," he says, "is that people will say, 'Sure you increased enterprise value, but you never won anything.'"

Unlike most sports teams, the Maple Leafs are not a plaything of the rich nor an excuse to fill airtime by a media conglomerate; it's controlled by 271,000 teachers, principals and administrators, active and retired. The Ontario Teachers' Pension Plan owns 58% of Maple Leaf Sports & Entertainment, and it's thrilled with Peddie's management.

FORBES estimates that the operating profit of the hockey team increased 24% last season to $53 million, with help from a surging Canadian dollar (the team collects revenues mostly in Canadian currency but pays player salaries in greenbacks). Perhaps more than any other sports team the Maple Leafs are run to maximize returns. "The sportswriters tried to get me fired," says Peddie. "But now they figure I make so much money for the owners I am bulletproof."

The owners aren't doing too shabbily, either. One of Canada's largest institutional investors, Ontario Teachers' manages $112 billion of assets. Its private equity group, responsible for the hockey investment, has pulled in annual returns of 26% since 1991.

While other pension funds pay Wall Street steep fees to place bets on their behalf, Ontario Teachers' relies on itself--it's run by Jim W. Leech and his staff of 65--for nearly all of its $19.5 billion in private equity investments. Its equity portfolio includes mattressmaker Serta, General Nutrition Centers and Shoppers Drug Mart, Canada's largest pharmacy chain. No 2-and-20 rule for Ontario Teachers': Leech says his operations cost the unit just 0.5% of assets yearly. He figures he would be paying roughly 8% annually--amounting to 30,000 pensions--if he farmed out the work to a buyout shop like Cerberus or KKR. In fact those private equity firms are rivals: Ontario Teachers' outmaneuvered them both recently and is set to close the biggest LBO in history, the $37 billion buyout of Canadian telecommunications company BCE. Leech, who is slated to take over the entire pension fund in December, pays for his own season tickets to the Leafs. "It's a great brand that people love," he says.

It wasn't always a money manager's dream. Some wishful thinking went along with the Ontario Teachers' initial $50 million investment for a 49% stake in the hockey team and its dilapidated Maple Leaf Gardens arena, back in 1994. A deal was put together and led by the late Steve A. Stavro, a grocery chain magnate who needed backing in order to take over the company. At the time, the Leafs were a publicly traded company controlled by the estate of Harold Ballard, a longtime owner who ran the team on the skimpiest budget. Stavro, it turned out, was on both sides of the buyout: He was also executor of Ballard's estate--a clear conflict. The buyout got the attention of Ontario securities regulators, who claimed Stavro misrepresented to shareholders the value of the team's broadcast revenues, and Maple Leaf Sports & Entertainment wound up paying $1 million to settle the civil charges.

More troubles surfaced in 1997 when Martin Kruze, then 34, emerged to tell a horrific account of sexual abuse he suffered as a teenager at the hands of Maple Leaf Gardens employees. Other victims came forward with stories of being lured with gifts of autographs and hockey sticks by arena employees in the 1970s and 1980s. Kruze committed suicide in 1997. Maple Leaf Sports & Entertainment has since spent millions of dollars in settlements; claims continue to trickle in.

Ontario Teachers' still found something to build on. The pension put in another $50 million in the form of a convertible note in 1998 as part of a $250 million private financing to buy the Toronto Raptors basketball team--another so-so franchise that nevertheless pulls in the fans and big bucks--and to finish building a new arena. In 2003 Ontario Teachers' converted the note into equity, boosting its stake to 58% as part of an agreement in which Stavro finally exited the ownership group. "The Maple Leafs work like every other business we own," says Leech. Very successfully: The original $100 million investment is today worth $700 million, after accounting for the company's debt. The fund has three representatives on the company's eight-person board but could easily override any decision it doesn't like by simply calling a shareholders meeting. The owners cede operational control to Peddie and his managers.

A graduate in business from the University of Windsor, Peddie spent 19 years in the packaged goods industry managing products like Pillsbury's Green Giant line and Hostess Potato Chips. He became chief of newly organized Maple Leaf Sports & Entertainment in 1998 and oversaw the development of a $200 million arena (not a cent of that from taxpayers) that opened a year later. Peddie sold the naming rights to the nation's biggest airline--it's the Air Canada Centre--and fitted it with the kind of amenities that have since become commonplace in big-time sports, from a restaurant with a view of the ice to an on-site microbrewery. The Maple Leafs sell out every home game, and with the basketball team playing out of the same arena, Peddie easily keeps the place in business 300 days a year by adding concerts and other events.

He has also deftly managed the team's television rights, exploiting the fact that the Leafs are the NHL's most valuable media property. The league shares some, but not all, broadcast revenue, and the Leafs, in order to help maximize the overall pot, give up 30 of their 82 regular season games to the Canadian Broadcasting Corp., which pulls in as many as 1.4 million hockey fans. Peddie makes the most of the games he can sell regionally--money he doesn't have to divvy up. The regional business is a little tricky. Because Canadian regulators wouldn't let him start an analog station, Peddie launched a regional digital television broadcaster, Leafs TV, in 2001. Though the channel is still a moneyloser, airing 20 games, it serves a valuable function, sparking demand from rival broadcasters to carry the games on terms very favorable to the Leafs. Rogers Sportsnet, for example, recently agreed to a rich deal, reportedly worth $115 million over eight years, for regional rights of up to 22 games a year. As part of the deal Peddie persuaded Rogers Sportsnet's parent, cable company Rogers Communications
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